Pending home sales fell off of the
19-month high reached in November according to figures released on Wednesday by
the National Association of Realtors® (NAR), but were still higher than one
year ago. NAR’s Pending Home Sales Index
(PHSI) dropped from 100.1 in November to 96.6 in December, a decline of 3.5 percent. December pending home sales were still 5.6
percent above the December 2010 index of 91.5.

The PHSI is a measure of signed
sales contracts for home purchases where the transaction has not closed. It is considered a forward indicator as the
sale is usually finalized within one or two months of contract signing. An index
of 100 is equal to the average level of contract activity during 2001.

Lawrence Yun, NAR chief economist, said the trend line remains
positive. “Even with a modest decline, the preceding two months of
contract activity are the highest in the past four years outside of the
homebuyer tax credit period,” he said. “Contract failures remain an
issue, reported by one-third of Realtors® over the past few months,
but home buyers are not giving up.”

Yun said some
buyers successfully complete the sale after a contract delay, while others stay
in the market after a contract failure and make another offer. “Housing
affordability conditions are too good to pass up,” he said. “Our hope is
lending conditions will gradually improve with sustained increases in closed
existing-home sales.”

On a regional
basis results were mixed with three regions showing increases on a year to year
basis but only one increasing during the December.

Pending Home Sales by Region

Region

Index in

December

Chg Nov to
Dec.

(%)

Chg Dec.
2010 to

Dec. 2011
(%)

Northeast

74.7

-3.1

-0.8

Midwest

95.3

+4.0

+13.3

South

101.1

-2.6

+4.9

West

107.9

-11.0

+3.7

U.S.

96.6

-3.5

+5.6

NAR also issued an economic forecast which predicts a healthy growth in
both real and nominal GPD over the next two years with real GDP growing in a historically
normal range of around 3 percent and the unemployment rate falling under 8
percent by 2013.

Housing starts are expected to improve to around 750,000 in 2012 and
reach a million the next year – both figures well below the historically
typical 1.5 million. Housing sales, both
new and existing, will remain relatively flat with new home sales reaching a
half million by the end of 2013.
Existing home sales are estimated to have totaled 4.26 million in 2011
and will rise gradually to 4.45 million and 4.62 million in 2012 and 2013
respectively.

Inventories are not projected into the future, but the supply of existing
homes is trending down and is now around 2.25 million. The inventory of new homes has declined to a
nearly negligible level, however given the pace of sales, both inventories
represent about a six month supply.

NAR expects
median prices of both new and existing homes to rise only slightly from current
levels of$223,400 and $166,100 during 2012 but will rise more rapidly during
2013 to a median level of $235,800 and $172,600 by year end.

Little new apartment construction and surging demand has created a shortfall of 2.5 million units, the largest the nation has seen in more than a half-century, according to research from Nareit, a trade group for real-estate investment trusts.

As we’ve reported, apartment landlords are seeing vacancy rates decline as more Americans rent by choice or necessity. In the fourth quarter, apartment vacancy fell to the lowest rate since late 2001, with the national rate dropping to 5.2% from 6.6% a year earlier, according to Reis Inc. The vacancy rate had risen as high as 8% in 2009.

Pent-up demand could pull that rate even lower. According to Nareit, the normal rate of household formation is about 1.2% annually. But, with the sour economy in the last four years, the rate plunged to about 0.5%, as people delayed moving out and opted to live with roommates and parents longer.

This has created an unmet demand of about 2 million households, “about three times what it has been in previous business cycles,” says Calvin Schnure, vice president of research and industry information at Nareit. He expects many of these people to eventually turn to the rental market.

This comes as construction of new apartments slowed dramatically after the financial crisis. Building of multifamily units fell to a 20-year low during the recession and the units under construction remain at nearly 60% below the long-term average. Apartment construction is slowly picking up, though it will be a year or two before many projects are finished.

As the economy heals and hiring picks up, many of these households will seek their own place and that’s expected to be rentals, Mr. Schnure says. Once those doubling up “have an income that they can make their own rent payment, they’re going to rent on their own,” he said.

Keep in mind that Nareit’s members include publicly held apartment owners. The seemingly red-hot sector could weaken if the housing market recovers and more people buy homes.

Another risk is overdevelopment, which could create competition that forces landlords to cut rents. There’s also the chance of the economy weakening further, keeping all that pent-up demand, well, pent up.

Mr. Schnure remains bullish. “The fun is just about to begin,” he says. “It’s going to take some time for these households to move up. It’s a question of when it’s going to be realized. Even if you take a fairly conservative assumption,” it could be several years.

Sales of new single-family homes increased to a seasonally
adjusted annual rate of 369,000 in May from a rate of 343,000 in April
according to figures released this morning by the U.S. Census Bureau and the
U.S. Department of Housing and Urban Development. The month-over-month increase from the
slightly revised April number was 7.6 percent and May’s figure was 19.8 percent
higher than the new home sales estimate of 308,000 in May 2011.

The median price of a newly constructed single family home
was $234,500 and the average was $273,900.
In May 2011 the median and average prices were $222,000 and $262,700
respectively.

Sales in the Northeast region were at a seasonally adjusted
rate of 41,000, a 36.7 percent increase from April and up 127.8 percent from a
year earlier. In the Midwest sales were
down 10.6 percent to 42,000 an increase of 2.4 percent compared to May
2011. Sales in the South increased 12.7
percent to a 204,000 unit rate, a 16.6 percent year-over-year change and in the
West there were 82,000 sales, down 3.5 percent month-over-month but up 10.8
percent on an annual basis.

Sales on a non-seasonally adjusted basis totaled 35,000 nationally
in May compared to 33,000 in April. More
than half (19,000) of the sales were in the Southern region.

At the end of May there were an estimated 145,000 new homes
for sale which represents a supply of 4.7 months at the current sales
rate. One year earlier there were
169,000 homes available, representing a 6.6 month supply. The average house for sale has been on the
market for 7.9 months since construction was completed.